What Is a Guarantor Signature?

May 12, 2011

By: Sapling Editor

Guarantor

A guarantor is an individual who signs a loan or lease document in addition to the primary borrower. If the primary borrower defaults on the obligation, the guarantor will step in and pay for the debt. Guarantors are sometimes used in rental agreements, on student loans, with mortgages and auto loans. When a guarantor signs the agreement, she does not have a responsibility to make the payments unless the primary borrower no longer can afford to do so.

Business Applications

A guarantor signature can also be used in business applications. For example, a startup company may be unable to secure credit because of a lack of business credit history. To solve this problem, the owner of the company may become a guarantor for the new company. The owner will have to personally sign for business loans and if the business defaults, he will have to come up with the money personally.

Advantages

If you need to get credit, using a guarantor can significantly increase the chances of getting it. When you use a guarantor, the creditor will not only evaluate your credit, but will also evaluate the credit of the guarantor. If the guarantor has good credit and a steady income, this will increase your chances of getting approved. If you need to rent a property, the guarantor could help you get the house or apartment you need.

Drawbacks

One of the potential drawbacks of using guarantor is that it puts another individual at risk for your decisions. If you are unable to continue making the debt or rent payments, someone else will suffer for this. In many cases, a family member volunteers to be a guarantor. When the individual defaults on the debt, it puts the family member in an awkward situation. She has to pay the debt or it will hurt her credit as well.